The Transformation Problem

To start our discussion, let's consider the fundamental idea presented

in these chapters: that under capitalism, the very nature of labor and
exploitation is transformed. How does this reinterpretation of exploitation,
as an abstract-alienated performance of labor, change our
understanding of the dynamics between workers and capital in modern
economies?

Please feel free to share your thoughts on this, and let's explore the
implications and applications of these ideas as our discussion unfolds.

Introduction:
This article provides a comprehensive overview of key insights from five
chapters discussing Marx's labor theory of value, its implications for price
formation, class struggle, and the fundamental concept of exploitation.
These chapters challenge and expand upon traditional economic
perspectives by revisiting Marx's ideas and addressing their
contemporary relevance.

Chapter 1: Marx's Labor Theory of Value Revisited

The first chapter introduces the reader to Marx's labor theory of value. It
discusses the importance of understanding value as determined by
socially necessary labor time. This concept lays the foundation for the
subsequent chapters, emphasizing that labor is the source of value and
exploitation in capitalist economies.

Chapter 2: The Transformation Problem: Myth or Reality?

The second chapter delves into the well-known "transformation

problem," which has been a subject of debate among economists. It
explores various perspectives on how value transforms into prices in a
capitalist system and argues that this problem should not overshadow
the core value theory's insights. The chapter stresses that the
transformation problem does not negate the labor theory of value's
fundamental relevance.

Chapter 3: Class Struggle and the Formation of Prices

Chapter 3 expands on the concept of class struggle in the context of

price formation. It underscores the importance of understanding that the
conflict between capital and labor significantly influences both value and
prices. This perspective provides a dynamic framework for analyzing the
role of social classes in shaping economic outcomes.

Chapter 4: A 'Living Labor' Alternative

In Chapter 4, the text presents a novel interpretation of Marx's "Monetary

Labor Theory of Value." It highlights the interplay between living labor,
value, price, and the composition of output in the context of capitalist
processes. This alternative view emphasizes the role of initial finance
and its impact on workers' real wages, offering a nuanced understanding
of value determination.

Chapter 5: What Are We Talking About When We Talk About

Exploitation?

The final chapter goes to the heart of Marx's notion of exploitation. It

rejects a purely distributive understanding of exploitation and
emphasizes that it is founded on the compulsion of workers to perform
labor as a "forced" and "abstract-alienated" activity. This chapter
underscores the dynamic relationship between capital and labor,
particularly in the context of "real subsumption of labor to capital."

Conclusion:

These five chapters collectively offer a fresh perspective on Marx's labor

theory of value, its implications for price formation, class struggle, and
the central concept of exploitation. By delving into these essential
concepts, the text challenges traditional economic paradigms and
encourages readers to revisit Marxian theory with a contemporary lens.
The interpretation provided here presents a nuanced understanding of
value, prices, and the dynamics of capitalist economies that remains
relevant in ongoing economic discussions.

Summary per Chapter

Marx Between 'Value' and 'Labour'

In this chapter, the author delves into Marx's groundbreaking work in

"Capital, Volume 1" and how it departs from Ricardo's labor theory of
value. Marx establishes labor as the foundation of capitalist exploitation.
He defines gross profits as the monetary representation of the direct
labor contributed by the working class, emphasizing the concept of direct
(or present) labor, which results from production, as distinct from living
labor expended during production. Labor power, inherent in wage
workers, is crucially linked to their identity as human beings, with living
labor representing the utilization or consumption of their labor power.

The discussion begins by introducing key concepts from the Marxian

theoretical framework. It starts with the definition of total direct labor
(DL), which crystallizes living labor (LL) performed by all workers. Capital
is divided into variable capital (V), representing necessary labor (NL),
and constant capital (C), representing means of production. V is the
means by which capital incorporates workers into its system, and surplus
value (SV) arises from the extension of LL beyond NL. The author
introduces the rate of surplus value (sv′), which is the ratio of SV to V,
and relates it to the rate of exploitation (e′).

This chapter highlights the significance of Marx's theory of value, both as

a basis for understanding exploitation and as a system for evaluating
commodities in terms of prices.

The Transformation Problem and Exploitation

This chapter delves into the dual system interpretation, which has been
the prevailing view of the labor theory of value since the early 20th
century. This approach distinguishes between two criteria for evaluating
commodities: one in terms of "labor values" (also called "exchange
values") and the other in terms of "production prices." Marx's work rests
on the notion of transforming labor values into production prices. These
values and prices were originally expressed in labor units, with no
consideration for the monetary dimension, which Marx later introduced.

Within the dual system interpretation, two key equivalences must hold
for the entire system: the equality between the gross product evaluated
in simple prices and in prices of production, and the equality between
total surplus value and total (gross) profits, confirming the concept of
exploitation.

However, the dual system approach faced analytical challenges

concerning its logical consistency. Early contributions by Bortkiewicz,
Dmitriev, and Tugan-Baranowsky led to a shift from a sequential to a
simultaneous transformation process. Some declared the transformation
problem solved, but it soon became evident that labor merely served as
a technical unit of measurement rather than a fundamental concept in
the economic system.

Sraffa's work in "Production of Commodities by Means of Commodities"

further questioned the role of labor in the value theory, suggesting that
the Marxian labor theory of value was redundant. The results seemed to
demonstrate that the values of commodities were not the essential
starting point for determining prices of production.

Michio Morishima proposed the Fundamental Marxian Theorem, linking

the positivity of the rate of surplus value to the rate of profit. Anwar
Shaikh viewed Marx's theory of value as a theory of relative price
determination, emphasizing an iterative transformation process.

Neoclassical economists like Samuelson and Baumol criticized the

transformation process as a detour. Baumol argued that the value
theory's significance lay in understanding that labor is the socially
relevant source of output, and competitive processes only distribute
profits, interest, and rent.

Despite these debates, questions about why labor is the sole socially
relevant source of output and why Marx's argument moves from simple
prices to prices of production remain open. These issues challenge the
assumption that commodities are reducible to labor content, raising
doubts about the notion that all value magnitudes, including the "value of
labor power," are nothing but objectifications of living labor. This chapter
highlights the ongoing complexity surrounding the transformation
problem and its relationship to exploitation.

The New Interpretation(s)

This chapter introduces the New Interpretation (NI) of the labor theory of
value, which emerged in the early 1980s. This alternative interpretation
of Marx's theory, advocated by Duménil, Lipietz, and Foley, presents a
distinct understanding of the value of the net product of the economy.
According to the NI, the value of the net product is the monetary
representation of the socially necessary labor time required to produce it.
This value is equated with the price of total direct labor.

The NI introduces the concept of the "monetary expression of socially

necessary labor time" (MELTsn), represented by the variable 'm.' It's
defined as the ratio between the money value added (MVA) and the
direct labor (DL) objectified within production during the same time span.
MELTsn quantifies what Marx referred to as the "price form" of the total
value created during the period.

The NI generalizes the concept of the "value of money" (denoted as μ)

beyond the idea of "money as a commodity." It applies μ to both the
"commodity law of exchange" and the "capitalist law of exchange." This
implies that Marx's theory of value is compatible with various price
determination mechanisms, and changes in these mechanisms affect the
allocation of direct labor among commodities.
The NI redefines notions such as necessary labor (NL) as the labor time
commanded by money wages in the market, modifying the concept of
the "value of labor power" found in Marx's "Capital I." This
reinterpretation influences the quantitative determination of variable
capital (V) and makes surplus value (SV) tautologically equal to gross
profits.

The chapter also discusses Moseley's approach, which extends the NI's
re-evaluation of the value of labor power to the value of constant capital.
Moseley suggests expressing constant capital as the labor time
equivalent of the monetary value of the means of production used as
inputs, resulting in a reconciliation of the Marxian framework and the rate
of profit definitions in "Capital." However, this approach relies on the
assumption that the value of money is given, which replicates Marx's
notion of money as a commodity.

The chapter highlights that these interpretations are largely centered

within the circulation sphere, and they raise theoretical puzzles,
particularly concerning the value of money, the value of labor power, and
the exploitation rate, which can only be quantified ex post. Additionally,
these interpretations risk sidelining Marx's macro view of class
reproduction and may rely on postulates and tautologies rather than
providing robust theoretical foundations.

A 'Living Labour' Alternative

In this chapter, the text explores an alternative approach to addressing

the issues of Marx's value theory, focusing on the concept of "living
labor." This alternative perspective aims to reconcile the differences
between simple prices, production prices, and the macroeconomic
perspective of Marx's value theory.

Marcello Messori suggests a "normalization condition" based on the

invariance of the social net product when computed in production prices
or in simple prices, both proportional to direct labor (DL), which
represents the objectification of living labor. The equivalence that
Messori argues for is between the "surpluses" measured in terms of
labor values (simple prices) and prices of production. This equivalence is
rooted in the idea that changes in the distribution of surplus value should
not lead to variations in the amount of living labor expended, given
changes in the level of wages and the value of constant capital.

Augusto Graziani's perspective emphasizes a macroeconomic viewpoint

to understand the Marxian theory of value. He asserts that the value
theory should be understood from a class perspective, where capitalists,
as a class, are set against the working class. In this context, the
exploitation inherent in capitalism becomes evident: the profit of
capitalists arises from the extraction of labor and the difference between
total labor extracted and the labor returned to the workers as real wages.

Riccardo Bellofiore extends this "Monetary Labor Theory of Value,"

introducing the concept of a monetary circuit that underlies capital's
monetary sequence within the period. This perspective links the
monetary aspects of capital with its value theory. Capitalists, as a class,
autonomously determine the level and composition of output, which, in
turn, establishes the amount of commodities available to workers as their
"given" class real wage.

This approach recognizes the importance of the real wage in terms of

production prices, and the advanced money capital becomes associated
with the labor required to produce this subsistence real wage. The
"necessary labor" (NL) is expressed in simple prices, and this definition
remains valid even when the price rule changes, as long as the given
class real subsistence wage and a macroscopic perspective are
maintained.

The chapter presents a formal framework to illustrate how changes in

the price rule may lead to divergences between the objectified labor
commanded in the market and the labor content required for the real
wage and profits. The macro-class distribution remains unchanged,
while the microeconomic price rule causes differences at the
micro-individual level. The concept of "necessary labor" and the rate of
surplus value (e') remain consistent in a class struggle perspective.
The chapter emphasizes that the price dimension in Marx's analysis
adds a layer of fetishism to bourgeois society, obscuring the concept of
exploitation. The "displacements" and "distortions" that occur due to
changes in price rules are integral to Marx's analysis of capitalism, which
is influenced by value, money, and capital as fetishes. The text argues
against ironing out these displacements and distortions and underscores
the importance of maintaining a class perspective in Marx's value theory.

What Are We Talking About When We Talk About

Exploitation?

This chapter delves into the essence of Marx's notion of exploitation. The
text argues that a proper understanding of exploitation in Marxian theory
goes beyond mathematical discussions and the connection to the
so-called transformation problem, focusing on a more fundamental
concept. The concept of exploitation should not be reduced to mere
distribution, whether in terms of a physical surplus over workers'
consumption or the surplus labor underlying gross money profits.
Instead, the heart of Marxian exploitation lies in the peculiar feature that,
under capitalism, all living labor extracted from wage workers is a
"forced" and "abstract-alienated" performance of labor as an activity.

The most crucial aspect of Marxian exploitation is the direct compulsion

to extract both labor and surplus labor from workers. This compulsion
results from the necessity of capital to extract labor from potentially
"recalcitrant" workers who still have some control over their own
activities. To achieve this, labor must be "embodied" and incorporated
into the capitalist system, making it part of the capitalist "machine." This
exploitation encompasses the entire working day, affecting both the
quantity and nature of labor. It is not merely a "distributive" concept, and
it remains consistent, regardless of whether the distribution is in terms of
use values or labor time. This concept of exploitation persists in any
economic context, regardless of price rules.

Exploitation, as defined here, is a direct and indirect imposition and

control over all labor in terms of its quantity and nature. The text
underlines that abstraction and exploitation are virtually coextensive,
particularly during the "machine and big industry" stage of capitalism.

Interestingly, Piero Sraffa, a figure not typically associated with Marxian

theory, understood the meaning of Marxian exploitation as a prolongation
of living labor relative to necessary labor. This understanding
emphasizes that surplus value arises from extending the working day
beyond what is required for workers' subsistence.

The chapter also highlights the connection between variable capital,

labor-power, and surplus-value, emphasizing that surplus-value is not
solely determined by the means of consumption needed to sustain
workers. Instead, it is shaped by the amount and intensity of labor they
are compelled to perform. This view underscores the power dynamics
within the capitalist production process and how surplus-value can vary
depending on the relative power of those involved.

In summary, the text argues for a return to Marx on exploitation by

considering the distinctions within the concept of "labor" and focusing on
the variability of living labor made liquid by capital within a specific
period, offering an interpretation that differs from neoclassical
economics, Neo-Ricardianism, and even some older and newer Marxist
approaches.

Questions per chapter:

Chapter 1: Marx's Labor Theory of Value Revisited

● How does Marx's labor theory of value challenge conventional

economic thought?
● What is the significance of understanding value as determined by
socially necessary labor time?
● How might Marx's concept of value affect our understanding of
the modern globalized economy?

Chapter 2: The Transformation Problem: Myth or Reality?

 ● What is the "transformation problem," and why has it been a topic
of debate among economists?
● Can the transformation problem be resolved, or does it
fundamentally challenge the labor theory of value?
● How does this chapter emphasize the continued relevance of
Marx's labor theory of value, despite the transformation problem?

Chapter 3: Class Struggle and the Formation of Prices

● How does this chapter expand on the concept of class struggle in

the context of price formation?
● In what ways does class struggle influence the dynamics of value
and price in capitalist economies?
● Can you provide examples of contemporary class struggles that
resonate with the themes discussed in this chapter?

Chapter 4: A 'Living Labor' Alternative

● What is the 'living labor' alternative, and how does it reinterpret

Marx's 'Monetary Labor Theory of Value'?
● How does the concept of initial finance impact workers' real
wages and the determination of value?
● Does this alternative perspective provide valuable insights into
economic dynamics in a modern, globalized world?

Chapter 5: What Are We Talking About When We Talk About

Exploitation?

● How does this chapter redefine exploitation and its connection to

labor in capitalist economies?
● What are the implications of considering exploitation as a 'forced'
and 'abstract-alienated' performance of labor?
● In what ways does the concept of exploitation extend beyond
distribution and affect the very nature of labor as an activity?

General Questions for the Whole Discussion

 ● To what extent do these chapters change or challenge your
understanding of traditional economic theories?
● How do these chapters contribute to the ongoing discussions
about capitalism, labor, and exploitation in today's world?
● Are there any specific aspects of Marx's labor theory of value or
the reinterpreted concepts that you find particularly compelling or
contentious?

thought-provoking questions
1. How do the concepts of the "living labor" perspective challenge
our traditional understanding of exploitation and the role of labor
in capitalist systems?

2. The chapters discuss the relationship between Marx's theory of

value and the determination of prices. How do different
interpretations of this relationship impact our understanding of
economic systems?

3. In these chapters, the role of class struggle in shaping economic

dynamics is emphasized. How relevant is the concept of class
struggle in contemporary economics and society, and in what
ways does it manifest itself?

4. The text touches upon the idea of "price determination

mechanisms." How might these mechanisms influence the
distribution of wealth and power in society, and do they acurately
reflect modern economic realities?

5. The discussion of the role of money, especially in relation to the

value of labor power, raises questions about the nature of
currency and its influence on economic dynamics. How might
these concepts be applied to modern financial systems and
monetary policy?

6. The concept of variable capital is introduced as labor power, and

the relationship between workers and capitalists is discussed. In
 today's gig economy and changing labor relations, how might
these ideas be adapted to better understand the modern
workforce?

7. The chapters introduce a distinction between living labor power,

labor power, and living labor. How does this distinction help us
analyze the experiences of workers in different industries and
sectors of the economy?